The Productivity Commission (PC) has signalled its views with respect to default funds under modern awards, stating that some of the original rationales for the current default architecture are no longer as relevant today.
In an issues paper released today dealing with alternative default models, the PC has backed its analysis stating that the system has matured significantly over the past quarter century, with accompanying improvements in transparency and compliance.
“Australians are much more familiar with the concept of superannuation and its workings. However, retirement decision-making remains very complex,” it said. “Having no defaults is our preferred, objective baseline for this inquiry.”
The issues paper then goes on to state that “alternative allocative models” will be assessed against the baseline position that no defaults ought to be the preferred position, but in doing so the current default selection process could be assessed in a similar way later in the process.
“All alternatives to the baseline could bring potential costs and benefits, and the assessment would need to examine who bears these costs, as well as who reaps the benefits of the alternatives,” it said.
The Commission said it proposed to assess alternative models against five criteria:
- Members’ best interests: meeting the best interests of members, by maximising long-term net returns and allocating members to products that meet their needs;
- Competition: fostering competition between funds that drives innovation and cost reductions, facilitates new entrants to the market (contestability) and leads to efficient long-term outcomes;
- Integrity: minimising scope for the allocation process to be manipulated (or ‘gamed’), including by using clear metrics that are difficult to dispute and by holding funds accountable for the outcomes they deliver to members;
- Stability: supporting a stable superannuation system, including by building trust and confidence in funds regulated by the Australian Prudential and Regulation Authority; and
- System-wide costs: minimising the total costs to members, employers and funds, including costs associated with regulatory compliance, complexity, “churn” and “gaming”, and minimising costs to government of implementing and administering the models.
